Beware of False Oil Tax Prophets
Regarding our piece yesterday about one lawyer’s advocacy for higher oil industry taxes, we provide (BELOW) Ak-headlamp’s comment today. We would only add that the lawyer proposes a “fair share” oil tax policy without definition or rational. He simply opines an assumption that a “fair share” of oil wealth for the bureaucracy should be “one-third of gross”… not one-third of net income! Calculating a net income would fairly allow a company to deduct costs after taking significant investment risks. Not deducting reasonable and traditional costs, particularly in a low price environment like the present one, could force a company to produce oil at a loss while government would continue to take a “third of the gross” — a true, undeserved windfall — while avoiding the risk inherent in basing up to 90% of a state’s income on a volatile commodity. The “one-third of gross” suggestion cleverly seems fair, doesn’t it? After all, it’s only a third! But upon examination, it creates a terrible economic climate that deters investment and stifles job opportunities for future citizens. It is grossly unwise — and unfair. It is merely one more way a socialized government spells the word, “expropriation”. For real world examples of expropriation, one need only to Google the Argentina and Venezuela case histories.
Beware of false prophets, fellow Alaskans! -dh
FROM AK-HEADLAMP (Also see this ADN link)
Economist Roger Marks fired back at Robin Brena’s recent spate of op-eds arguing for the state’s “fair share” of oil revenues. According to Marks, “There are two things wrong with this. First, the historical share since North Slope production began has been 23 percent, much lower than 33 percent. If you take the Alaska’s Clear and Equitable Share (ACES) years out (2007-2013), where there were very high oil prices and tax rates, the long-term share is more like 20 percent. (This includes royalties and production, property, and state corporate income taxes, including restricted royalties going to the Permanent Fund.) Anyone can confirm this data using historical information from the Department of Revenue’s “Revenue Sources Books.” The second problem is that this is an ill-advised way to ascribe “fair share.” In fiscal year 2016 the state received $1.3 billion in petroleum revenues, 17 percent of gross market value, while the taxpayers were losing money.”
In North America alone, oil companies have signaled they may collectively hike oilfield spending 25 percent to $110 billion next year, the largest budget increase since at least 2000, according to investment bank Evercore ISI, which surveys the oil companies every year. That money would flow directly to the oil field service companies that make drilling equipment and employ thousands of workers in Houston and around the country.
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